Hi, my name is Jim, and welcome to Just Answer.
Schedule E: Page 1 is for real estate rental activities, and royalties. Taxable income is on line 26.
Schedule E page 2 is for partnership and S corporation income reported on Schedule K-1, Estates and Trusts, and REMICS. The taxable income for each category is reported on lines 32, 37, 39, and 40. To determine what's taxable on your K-1, the general rule is that income reported on lines 1-14 of k1/1065, and 1-10 on K1/1120S, reflect taxable income.
It's not the income that is confusing. It's the losses. You have to distinguish between passive losses and non-passive losses so you know how much you can deduct and against what kind of income it can be deducted.
The way to do that is with the worksheets included with Form 8582, "Passive Activity Loss Limitations." There are seven worksheets on pages 2 and 3 of form 8582.
To comprehend the taxability of figures on your K-1's you have to understand "basis." Very generally, a person's ownership interest in a partnership or S corporation is the value of their share. or shares. "Basis." Both S corp shareholders and partnership partners have to pay self employment tax on a certain portion of their earnings; but residual profits can be distributed to them tax free, as long as the distributions do not exceed their share basis. If a distribution exceeds a shareholder's basis, the excess is reported as a capital gain on schedule D via form 8949.
Partnership K1's will show distributions on line 19; S corp. K1's will show them on line 16.
Here are the instructions from the IRS:
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